Chapter 15: Q30PGB (page 848)

Net sales revenue, net income, and commonA stockholders’ equity for Azbel Mission Corporation, a manufacturer of contact lenses, follow for a four-year period.
Requirements
1.Compute trend analyses for each item for 2017–2019. Use 2016 as the base year,and round to the nearest whole percent.
2.Compute the rate of return on common stockholders’ equity for 2017–2019, rounding to three decimal places.

Expert verified

(1) Trend analysis is shown in Step 1.

(2) The return on common Stockholder’s equity for the year 2017,2018 and 2019 are 12.460%, 11.940% and 16.714% respectively

Step by step solution

Compute the trend analysis for 2017-19 asfollows:

	2017	2018	2019
Net Income	39,000	40,000	59,000
Beginning Common Stockholder’s equity	302,000	324,000	346,000
Ending Common Stockholder’s equity	324,000	346,000	360,000
Average Common Stockholder’s equity	313,000	335,000	353,000
Return on Common Stockholder’s equity	$39,000/313,000 =12.460%	$40,000/335,000 =11.940%	$59,000/353,000 =16.714%

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XYZ ATHLETIC SUPPLY, INC.
Five-Year Financial Summary (Partial; adapted)
(Dollar amounts in thousands except per share data)	2018	2017	2016	2015	2014	2016
Net sales revenue	\(275,000	\)222,000	\(199,000	\)171,000	131,000
Net Sales Revenue Increase	24%	12%	16%	31%	17%
Domestic Comparative Store Sales Increase	6%	6%	5%	8%	10%
Other Income—Net	2,090	1,780	1,770	1,700	1,310
Cost of Goods Sold	208,725	169,386	154,822	134,235	103,883
Selling and Administrative Expenses	41,280	36,340	31,670	27,450	22,540
Interest:
Interest Expense	(1,070)	(1,370)	(1,330)	(1,100)	(800)
Interest Income	140	155	150	230	140
Income Tax Expense	4,420	3,900	3,610	3,390	2,730
Net Income	21,735	12,939	9,488	6,755	2,497
Per Share of Common Stock:
Net Income	1.10	0.80	0.70	0.50	0.28
Dividends	0.45	0.43	0.39	0.35	0.31
Financial Position
Current Assets, Excluding Merchandise Inventory	\(30,900	\)27,200	\(26,800	\)24,400	$21,800
Merchandise Inventory	24,700	22,400	21,600	19,300	17,000	16,800
Property, Plant, and Equipment, Net	51,600	46,200	40,500	35,000	25,200
Total Assets	107,200	95,800	88,900	78,700	64,000
Current Liabilities	32,600	27,800	28,800	25,600	17,000
Long-term Debt	23,000	21,200	16,800	18,600	12,900
Stockholders’ Equity	51,600	46,800	43,300	35,500	34,100
Financial Ratios
Acid-Test Ratio	0.9	1.0	0.9	1.0	1.3
Rate of Return on Total Assets	22.5%	15.5%	12.8%	10.9%	9.9%
Rate of Return on Common Stockholders’ Equity	44.2%	28.7%	24.1%	19.4%	18.9%

1..Includes the income statement, balance sheet, statement of stockholders’ equity, and statement of cash flows	a. Notes to financial statements
2. Attests to the fairness of the presentation of the financial statements.	b. Report of independent registered public accounting firm
3. Includes a summary of significant accounting policies and explanations of specific items on the financial statements.	c. Management’s discussion and analysis of financial condition and results of operations (MD&A)
4. Is written by the company to help investors understand the results of operations and the financial condition of the company.	d. Financial statements